AB Corp has 1,000 shares outstanding and two equal shareholders, Allison and Bella. Bella has a basis of $5,000 in her 500 shares and Allison has a basis of $2,500 in her 500 shares, both owners purchased their shares 3 years ago. Determine the tax consequences of the following distributions to the shareholders and to AB Corp.

A. AB Corp has accumulated E&P of $5,000 and current E&P of $3,000 and makes a distribution of $10,000 on December 31^st of the tax year ($5K to each shareholder).

B. Disregarding A above, assume AB Corp has accumulated E&P of $5,000 and current E&P of $3,000 for the year and makes a distribution of $5,000 on July 1 of the tax year and another distribution of $10,000 on December 31^st of the tax year. Bella sells her shares to Bob on October 15^th for $10,000.

C. Disregarding A and B above, assume AB Corp has a deficit in accumulated E&P of $5,000 and current E&P of $3,000 and makes a distribution of $9,000 on December 31^st of the tax year ($4,500 to each shareholder).

D. Disregarding A through C above, assume AB Corp has accumulated E&P of $5,000 and a current E&P deficit of $4,000 for the year and makes a distribution of $5,000 on July 1 of the tax year.

Answer Question "D" only